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Zynga (ZNGA) Q2 Earnings Break Even, Revenues Up Y/Y

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Zynga (ZNGA) Q2 Earnings Break Even, Revenues Up Y/Y

Zynga's (ZNGA) second-quarter 2018 results benefit from strong mobile revenues and bookings and monetization of live services.

Zynga ZNGA reported breakeven earnings in second-quarter 2018 against earnings of a penny in the year-ago quarter.

Revenues increased 3.7% year over year to $217 million. The growth was supported by solid mobile revenues and successful monetization of live services.

Total bookings came in at $233.9 million, up 11.8% year over year, driven by strong mobile bookings.

The Zacks Consensus Estimate for earnings and revenues was pegged at 3 cents and $230 million, respectively.

Quarter Details

Zynga’s online game revenues (75.9% of total revenues) increased 0.6% year over year to $164.7 million on the back of its popular games Words With Friends, CSR2 and Zynga Poker.
 

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Mobile revenues (88.8% of total revenue) and mobile bookings increased 7% and 16.5%, respectively year over year to $192.7 million and $211.6 million. The increase was driven by robust live services performance and small-scale bookings contribution from the acquisition of Gram Games.

Words With Friends’ mobile revenues and mobile bookings increased 30% and 49% respectively year over year driven by advertising revenues and increasing engagement levels.

Zynga Poker’s mobile revenues and mobile bookings increased 19% and 13%, respectively year over year on the back of updates introduced in the game.

CSR2’s mobile bookings increased 21% year over year. However, mobile revenues decreased 4% year over year due to timing difference of revenue recognition.

Zynga’s social slots portfolio mobile revenues and mobile bookings were down 5% and 3% respectively year over year due to bad performance of a few titles, which was offset by increased revenues and bookings from Hit It Rich! and Wizard of Oz.

Advertising revenues (24.1% of total revenue) and advertisement bookings increased 17.6% and 22.1%, respectively year over year to $52.2 million and $53 million. The increase was driven by higher engagement levels of Words With Friends.

Zynga’s average daily active users (DAUs) increased 9.5% year over year to 23 million and mobile DAUs increased 10% year over year to 21 million.

Average monthly active users (MAUs) increased 10% year over year to 88 million and mobile MAUs increased 9.8% year over year to 78 million.

Operating Details

Non-GAAP operating expenses (57.8% of total revenue) increased 3.2% year over year to $125.4 million.

Research & development (R&D), sales & marketing (S&M) and general & administrative (G&A) expenses on a reported basis increased 4.3%, 3.3% and 8.6% year over year, respectively.

Adjusted EBITDA declined 10.7% year over year to $26.7 million. Adjusted EBITDA margin contracted 200 basis points (bps) on a year-over-year basis.

Balance Sheet

As of Jun 30, 2018, Zynga had cash and cash equivalents & short-term investments of $392.2 million compared with $635.4 million as of Mar 31, 2018. The decline can be attributed to Gram Games acquisition.

Operating cash flow in the quarter was $41.1 million while free cash flow was $38.9 million.

Guidance

For third-quarter 2018, Zynga expects revenues to be $218 million and bookings to be $248 million. Management expects top-line to benefit from Casual Cards and Gram Games acquisitions as well as strength across its portfolio.

Operating expense is expected to increase sequentially. Adjusted EBIDTA is expected to be $16 million. Net loss is expected at $21 million.

Zacks Rank & Stocks to Consider

Zynga currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader consumer discretionary sector include AMC Networks AMCX, Penn National PENN and Activision ATVI. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Long-term earnings growth rate for AMC Networks, Penn National and Activision is projected to be 7.2%, 10% and 15.4%, respectively.

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